This 19th Century Livestock Scam Will Help You Understand Why GrubHub Shares Are Down Today

GrubHub shares fell more than 8% on Monday after
the company announced that it would issue about 10
million additional shares.

The offering is comprised of about 8.7 million shares being sold
by members of the company's board and management, and 1.25
million shares sold by the company. The proceeds from stock
being sold by company insiders won't go to the company.

When companies
issue more stock, they are said to be "diluting" their shares, as
the greater number of outstanding shares spreads earnings
thinner, often leading to a decline in the price of the
outstanding shares. You could also think of this as "watering
down" the stock.

This
discounting has a mathematical origin, of course, but the origins
of the phrase are rooted in Wall Street lore.

"And, in
earlier days, a company that drastically diluted its shares (with
large amounts of convertible debt or multiple offerings of common
stock) was said to have 'watered' its stock. This term is
believed to have originated with the legendary market manipulator
Daniel Drew (1797-1879), who began as a livestock trader. He
would drive his cattle south toward Manhattan, force-feeding them
salt along the way. When they got to the Harlem River, they would
guzzle huge volumes of water to slake their thirst. Drew would
then bring them to market, where the water they had just drunk
would increase their weight. That enabled him to get a much
higher price, since cattle on the hoof is sold by the pound. Drew
later watered the stock of Erie Railroad by massively issuing new
shares without warning."

So that's
where we get the phrase.

However,
GrubHub told us they were selling shares, and so investors today,
unlike those in the 1800s, are able to discount shares
accordingly, instead of getting stuck buying water-logged
cows.